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Do Cities Have Standing? Redressing the Externalities of Predatory Lending

Predatory lenders penetrate communities and, like polluters, leave distressed properties and desperate people in their wakes. The task of cleaning up falls to cities, yet predatory lending reduces the resources available for this clean up. Declining property values resulting from predatory lending mean reduced tax revenues just as empty buildings lead to increased demand for fire and police protection. City budgets are further strained as victims of predatory lending turn to cities for relief programs and protection from abusive lenders. In the language of economics, predatory lending imposes negative externalities on cities.

Lawyers across the country are pursuing claims on behalf of victims of predatory lending. Legislators are passing new laws to extend protection to borrowers and researchers are exploring the causes and cures for predatory lending. Yet, little attention has been paid to the plight of cities.

In this article, I analyze whether cities have standing to recover damages for the externalities that predatory lenders impose on them and whether cities have standing as parens patriae to pursue claims against predatory lenders. The paper begins with a description of the impact predatory lending has on municipalities and then turns to the law governing municipal standing to sue predatory lenders. I also examine particular claims cities could bring against predatory lenders and the bases for city standing to bring these claims. My conclusion is that broad grants of standing to cities to pursue claims against predatory lenders are necessary to enable cities to protect residents from lender wrongdoing, to recover damages for the injuries predatory lenders impose on cities, and to force abusive lenders to internalize the externalities of their lending practices.